January 5, 2011

Starbucks Deal With Kraft Costs It Millions in Potential Single Serve Coffee Sales

Bloomberg has a very interesting take on the current agreement between Kraft and Starbucks. Starbucks Corp., the world’s largest coffee chain, will miss out on a surge in home-brewing unless it can break a 13-year-old deal that ties its fortunes to Kraft Foods Inc.’s slow-selling Tassimo machine. That's right - if it can't break away from Tassimo, then Starbucks will miss the Single Serve Coffee ride.

VIA is not selling that well at grocery according to the article, and how bad is it selling? For the 12 months ending in October, Via generated $16.8 million worth of sales in U.S. groceries, according to SymphonyIRI. During the same period, Green Mountain K-Cups alone did $72 million in U.S. grocery sales.

Here's some other highlights:

Under the terms of the deal, Starbucks can’t put its coffee in the Keurig Home Brewer, according to a complaint from Kraft filed in federal court in White Plains, New York.

Kraft’s brewing system has 2.6 percent of the grocery market; Keurig, which dominates the U.S. market for machines that make single cups of coffee in a minute or less and is owned by Green Mountain Coffee Roasters Inc., has 71 percent.

And the key one...“We are looking forward to providing Starbucks customers with more ways to enjoy Starbucks coffee, one cup at a time,” Hilowitz said via an e-mailed statement on Dec. 29.

So is Starbucks going to go to Green Mountain after they break up with Kraft? All signs point to a bigger maybe then ever before, and we'd really enjoy having some Starbucks K-Cups.

I also wanted to address SH’s comment at the bottom about the quality of the Dolce Gusto beverages. I strongly disagree. I have a Dolce Gusto (soon to be given away along with my Keurig) and the drinks are disappointing at best. The 1 espresso it has is pretty good but all of the frothy drinks are horrible. The over sweetened powdered milk in no way simulates a café quality beverage. Not to mention their failed attempt at mocha with powdered chocolate and coffee flavor. Plus, at the $99 price range you get a manual lever on the Dolce Gusto. Not necessarily a bad thing but if you’re not careful you will end up with varying results. Don’t get me wrong. I would still choose a Dolce Gusto over Keurig any day but it is in no way superior to Tassimo. The tassimo is clearly the best machine in its price range. They just need more beverage choices to take advantage of its superiority. For those who don’t desire milk based beverages the BUNN MC is the next best machine. I’ve been thinking long and hard about this for months and I can’t figure out why people are buying Keurigs at the rate they are. I must be lazy consumers who buy the first thing that’s shoved in front of their face. I can say that because that’s how we bought ours. It’s so in your face that we thought they were the only machine (being new to single serve). If only I had done my research first. Even my wife, who actually purchased the Keurig, told me the other day “If I would have known then what I know now I would have just gotten the Tassimo and we wouldn’t have had to try all the other machines.” Although, having tried every machine I can confidently say they Tassimo is still the best.

Posted by: AO at February 17, 2012 11:39 AM

I know I’m a little late to the party but I figured I would comment anyway. Starbucks is a whore and their coffee isn’t that good anyway. There is definitely better coffee to be had but the American public tends to follow purchasing trends like blind sheep. Just like Starbucks did with the Tassimo discs they are demanding a higher price for their K-Cups as well. For what, a pretty standard cup of coffee with a green picture of a chick on it? The same can be said for Keurig. Another company who thinks their $#!+ don’t stink. And the way the same blind sheep are following them I can understand their bloated egos. Pretty standard coffee at increasingly ridiculous pricing. I know that there is an inherent cost consumers will pay for the convenience of single serve. And a premium price can be justified if the end product is exceptional. However, I have never had a cup of coffee from my Keurig that tasted any better than some of the other machines I have. So when the cups are nearly twice the price it just doesn’t make sense. As long as the consumers keep buying their garbage they will keep thinking they can do no wrong and their pieces will continue to climb until they have you by the balls. I haven’t used my Keurig in months because it just plain sucks and is so not worth the hype. I will stop drinking coffee before I give another cent to them.

Posted by: AO at February 17, 2012 10:46 AM

Angry and Disappointed!!!!!!!!!!

Starbucks learned a tough lesson. Dont contract to have a company package and distribute your coffee ,if they own numerous coffee brands outright.

Kraft with its its huge distribution system didnt put t-discs in supermarkets!!!!!!! Thats crazy. You cant buy coffee in a food store??????????

Now that supplies of Starbucks t-discs are gone or nearly gone, what are Tassimo owners to do???? Abandon the coffee brand that caused them to buy a Tassimo in the first place??

Posted by: Jamie T at June 25, 2011 7:50 AM

Poor S(b)uck$ - left out in the cold... even after all that cross-promotion of the Tassimo line on their website and in their stores...

They provided zero support and now are unhappy the one way street turns out to be a dead end?

Posted by: Eric at January 6, 2011 5:14 PM

We might see Starbucks make a K-Cup now, even if they have to give up some of the profits, just out of Spite for how angry they are at Kraft.

Posted by: pauol at January 6, 2011 4:16 AM

Just use the little Keurig-compatible cup that lets you put whatever brew you want in it. Presto! Starbucks in your Keurig.

Posted by: Deb at January 6, 2011 12:30 AM

Kelly, I don't hear anyone here complaining about the free market system. We're simply disappointed that we've invested in coffee makers that we hoped would brew some of our favorite brands of coffee.

Would you complain if you bought a new car, then discovered that the only fuel that it ran on was being discontinued? Would you call a waaaaaaambulance then?

Posted by: diggadonkey at January 5, 2011 7:14 PM

Somebody call a waaaaaambulance. This is the same kind of scenario that played out many years ago between VCR's and VHS's. VCR's won. Then fast forward to some recent history of the battle between digital DVD and Blue Ray. Looks like Blue Ray won that one. So now we introduce the K-cup vs. T-Disk. It's called consumerism and the free market system. Learn to live with it.

Posted by: Kelly at January 5, 2011 5:30 PM

That would be awesome if starbucks started making k cups !!!!

Posted by: michelle at January 5, 2011 12:19 PM

Yeesh. Talk about a bad choice. No worries, though, I would assume the Tassimo machine will disappear long before the 13 year deal expires. Just the fact that the Starbucks T-discs are the most expensive ones, is pushing most Tassimo owners/possible buyers to get a K-cup machine. No fill-your-own(My K-Cup, Solofill, etc.) must be killing the Tassimo as well.

Posted by: Purcell at January 5, 2011 9:38 AM

Seems like it's only a matter of time before Starbucks T-Discs disappear. I guess I better stock up now while I still can. Bummer. It's about the only thing I brew in my Tassimo.

Posted by: diggadonkey at January 5, 2011 9:09 AM

Sorry for the length of this comment, but allow me to rant for a bit. This has been a major thorn in my side in regards to how Kraft is slowly killing-off its Tassimo machine in North America and pushing sales to its competitors.

If Starbucks does indeed sign with GMCR and start making K-Cups, it will all but signal the death of Tassimo sales in North America.

Most people I know bought Tassimos over the past few years SOLELY because you could get Starbucks T-Discs. Once Starbucks cease T-Disc production, they'll also pull all other brands they currently manufacture/supply in T-Disc format (i.e. Seattle's Best, etc) and likely start making them in K-Cup format instead.

Tassimo machines appear to have a bigger cult following in Europe since that is where they were originally released (even back when Braun was the manufacturer) and Europe appears to have a much bigger T-Disc selection as a result. Here in Canada, T-Disc selection flat-out sucks in retail. We have about maybe 12 flavors tops in grocery stores and maybe 18-20 in specialty stores like Bed Bath & Beyond + Home Outfitters. Compared to almost 50-80 brands available online or retail in Europe, it's easy to see why the machine is failing to gain sales this side of the pond.

Kraft's ongoing refusal to sell most of its European T-Discs online via its own Tassimo eShops in Canada & USA only adds to customer frustration and lack of satisfaction. The solution is simple: make ALL T-disc flavors available WORLDWIDE for sale on ALL online Tassimo eShops. If Nespresso (another major player that got its start in Europe) can do it, why can't Kraft?

The only thing the Tassimo has going for it is that it can brew milk capsules to make frothy drinks, but with Nescafé's Dolce Gusto being price dropped to $99 CAD @ Wal-Mart(not sure what it's going for in USA) most people are passing-up the Tassimo once they realize how superior the Dolce Gusto's frothy drinks are in comparison. Kraft seriously needs to rethink its distribution strategy if it intends to survive in the coming years.

Posted by: SH at January 5, 2011 9:01 AM

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